Tuesday, April 12, 2011

Confirmed losses on B.C.’s Olympic Village $230-million and rising

I was intrigued to read this story in today's Globe and Mail by Gary Mason. Given all the numbers now floating around, I hope the city will respond and clarify what the outstanding loan is; how much is owed on the land; what is the sales projection is for the condos; what is the sales projection for the rental building and retail space; what is the projected loss/subsidy for the social/rental housing; what will the loss be on the condos that have now been rented out; what are the estimated carrying costs during the sales period; and what are the fees being paid to the lawyers and receivers. As I wrote in previous posts, I just couldn't believe that the losses would only be $40 to $50 million, notwithstanding the 'heroic efforts' by the current administration.

The athletes' village for the Vancouver 2010 Winter Olympic Games is pictured as construction continues at the site in Vancouver, B.C., on Friday October 9, 2009. (Lyle Stafford for the Globe and Mail)

When reporters left a briefing with City of Vancouver officials last week on the troubled Olympic Village project, there was unanimous agreement on the storyline: losses were now estimated to be in the neighbourhood of $40-million to $50-million.

While still bad, it was a far cry from the dire and pessimistic predictions that had been made in some corners, including this one, that the city’s Village-related deficit could exceed $150-million. But thanks to the heroic efforts of the governing Vision Vancouver party, it looked like the hit taxpayers were going to take wouldn’t be nearly as bad.

As it turns out, the city’s losses will be far worse than many forecast. Because, while officials were telling the media that the city expected to recover all but $50-million of the $579-million owed by defunct Millennium Development Corp. on its construction loan, it forget to mention the nearly $180-million the developer hadn’t paid Vancouver taxpayers for the land it purchased.

So, in fact, the losses on the project will total at least $230-million – that is, if the city is lucky and the stars align just right for the sale of the 340 or so remaining condos.

And that is far from a sure bet. Plus, there are other costs that don’t seem to be calculated into the accounting provided to reporters last Friday, such as strata fees that are accruing on rental units that aren’t yet occupied. There is very likely interest charges that need to be taken into account too, plus fees that need to be paid to the receiver that is managing the project.

But that wasn’t the message the city wanted to deliver on Friday. Instead, city manager Penny Ballem took reporters through a power-point presentation that highlighted the many actions that the Vision-controlled council had taken to mitigate some of the losses on the development.

I have no problem with outlining some of the decisions made to help cushion the blow to taxpayers. But at least be honest about what the final tally is instead of trying to deceive people.

When all is said and done, the Olympic Village will likely represent the biggest financial disaster in the city’s recent history. A responsible government would be completely up front with its citizens about where things stand rather than trying to sweep a nearly $180-million land loss under the mayor’s carpet.

And as I say, the final amount could be much higher yet. Just look at the numbers.

Of the $579-million Millennium owed on its construction loan (which was separate from the $178-million it owed for the land), the city is saying it expects to lose up to $50-million. So let’s round it off and say it anticipates recouping $530-million of the total loan amount.

Of that, it hopes to reap about $70-million from the sale of assets seized from Millennium Development Corp. Olympic Village marketer Bob Rennie recently sold 118 condos for an undetermined amount. But they were smaller units, not luxury ones. Let’s say the average price was $700,000. That would provide another $80-million or so. So now your loan amount is down to about $380-million.

Mr. Rennie has 340 units left to sell to make up the $380-million left. That is more than $1-million a unit. Not a chance in the current market, even if some go for a few million each. And Mr. Rennie is having to sell these units amid dreadful publicity generated by a class-action lawsuit launched by earlier buyers who want out of the Village because of what they insist is horrible workmanship and shoddy design.

And as mentioned, we haven’t factored in ancillary costs such as the receiver’s fees, estimated to be $8-million by some, and other accrued interest costs that could well be in the millions. And we also haven’t mentioned the $65-million in overruns on the social housing at the Village, which many feel should be calculated into any final accounting.

That would push the Olympic Village-related losses close to $300-million.

It will likely be a couple of years before we know how much Vancouver taxpayers got soaked on the Village. But it is far, far more than $40-million to $50-million. And it will likely be north still of the $230-million the losses are now confirmed to be.

It’s too bad the current city government is so insistent on playing politics with the project instead of just giving people the straight goods. There’s no way to sugar-coat this debacle. So why even try?

149 comments:

"it will likely be north still of the $230-million the losses are now confirmed to be"

A big factor is the sales prices of remaining units. There is a big risk on this front that nobody wants to talk about.

Just throwing it out there: will the City do taxpayers better by selling off all units at once at, say, 10% below market rates, instead of bleeding them over the next 1 or more years at market rates? Or are politics preventing this option from being considered? Food for thought.

Michael, clarify something for me will you... The asset that is the raw land on which the condos have been built has presumably been recovered as part of the City's seizure of OV assets. But it has no market value independent of the completed project because it becomes the property of the strata corporations who are the legal owners of the properties... ? Is there any way to recover value for this asset? In calculating cost to the taxpayer, the broadly considered inflated price paid by Millennium is used. Wouldn't it be more accurate to use an estimate of market value?

Or perhaps more accurate still to use the cost the taxpayer originally paid with "real dollars" to acquire the asset. An important asset in the City's land portfolio has been lost and that's a failure of management and oversight by the institution charged with the protection and maintenance of publicly owned assets, but how to quantify the loss to the taxpayer in a dollar figure?

I start to sound like an apologist for Millennium, which I'm sure not -- I'm from Nanaimo where they left a trail of devastation having hosed the local bumpkins, but... I would add to my earlier comments that you could say the City sold an asset for $29million for which they they paid $27million (according to CM Ballem today) -- far below its current market value certainly and a day of shame for the CoV but again, the question is what is the loss in dollar value to the taxpayer?

@Frank, just a thought, but why not quantify the land's value based on highest and best use? Bids were for around $100mm; that seems reasonable.

Remember this: the City raises money on the multi-trillion dollar bond market. The inconvenient fact that the City used to own a chunk of prime waterfront and now it doesn't isn't likely to be lost on analysts.

Michael, you have answered my questions on Frances Bula's blog. Thanks for continuing to contribute informed, balanced information that helps us understand these issues.

One last point: I'm not sure you have attributed value to the taxpayer represented by "the roads and community centre, etc as an asset". While it does sound like a City shell game, there is considerable value achieved from these expenditures, is there not?

I just read your post on FB's blog. Thanks for weighing in with another list of questions to ponder. I would love to see you put up a blog post of all the questions people want answers to, that the public could see. Perhaps we will never get answers but it would make me feel a bit better knowing that the public doesn't seem to be buying the BS coming out of city hall. I think the Mayor and every single member of city council deserve to lose their jobs this election. Any group of new politicians would be better IMHO.

Too many loose ends, too many Mayors, councils and possibly a Senator on the hook for this one. Take 2006 for example when the City decided to just give away the land. It would have been in the City's and taxpayers best interest to be at arms length in any development project. Why did they not demand the sale of the land upfront? Perhaps the City was banking on additional revenue - speculating in 2006 when they contracted with Millennium - and at what interest rate? And speculating even further when they decided to take over the Fortress Loan and act as lender at. . .? 8-12%?

Owner of land, Lender, planner, inspector , Developer, how many roles did the City think they can handle and still be at arm's length?

What happened to transparency on the Village that Mayor Gregor won his election on? And where is he now? Their actions and lack of respect for the media and public in general solidifies any belief that Gregor Robertson and this council can not be trusted.

A public inquiry is indeed required! Not just on financials but on the decisions and agreements made on this project. Will the truth be embarrassing and costly for taxpayers? Absolutely! Otherwise all documents would be public by now. There are too many loose ends - keep digging and get us those answers.

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